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| Sunday, 31 August 2003 |
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ADB expects economic growth to exceed 5% by Elmo Leonard Sri Lanka's economy is likely to exceed five per cent growth this year while inflation is expected to stay below 6.5 per cent. Further improvements are expected in 2004. The Government's 19-month-old economic policy is beginning to bear fruit, Asian Development Bank Deputy Country Director, Joseph Zveglich told the media. A study of the country's first quarter results points to many strengths in the current macroeconomic situation, making it possible to further ascertain growth for the rest of the year, Zveglich said. Answering questions, Zveglich said schools and clinics are being built in the North at a slow pace. "I can understand the expectations of the people; doing much more would be difficult," he said. Economic recovery in 2002 was even stronger than what the Government had anticipated, despite the weak performance on the external front, according to the ADB Resident Mission. The depression in the economy has been absorbed to a certain extent, and higher investment rates will be needed to sustain growth in the future. Although the Government has made progress in controlling the fiscal deficit and curbing inflation, more demanding work lies ahead. Revenue collections were below target mainly due to the shortfall in VAT collection. However, both recurrent and capital expenditure were on track to achieve their target levels for the year. Overall, the deficit target of seven per cent of GDP is still within reach, but the Government needs to adopt stronger measures to strengthen tax administration and increase revenue collection, according to the Mission. Trade performance has improved and export growth is likely to reach 10 per cent for the first time. The projections for import growth of nine per cent could be exceeded depending on the Government's success in accelerating development work, Zveglich said. The service sector will continue to provide the bulk of value addition and account for more than 50 per cent of growth. The growth in industry, seen for the first quarter of 2003, will continue contributing significantly to economic growth, Zveglich said. Although medium-term macroecononomic prospects look optimistic, resuming the peace talks and accelerating the public investment programme are important factors for sustaining momentum, the ADB economist said. It was also pointed out that stable food prices helped to restrain inflation, keeping it on a declining trend through the first quarter. Exports surged during the period, despite the adverse effects of the Iraq war on the tea trade. Overall, the agricultural sector grew by less than a percentage point during the period, with considerable variances across subsectors. Paddy production reached 1.9 million tonnes, an increase of 6.7 per cent over the previous year. Tea, coconut and rubber showed poor results, declining by seven per cent compared with the first quarter of 2002, which was five per cent lower than that of 2001. The tea industry has been hit particularly hard by the Iraq war as orders from the Middle East were delayed or cancelled. The fishing subsector declined by 4.8 per cent during the first quarter, ADB studies revealed. Industry expanded by 5.4 per cent, having grown by 3.6 and 5.1 per cent respectively in the third and fourth quarters of 2002. The electricity sector, with no loan shedding in the first quarter, generated 1,834 gigawatt hours of power, a 20 per cent increase over the same period in 2002. The construction industry grew by 7.6 per cent in the first quarter, ending five consecutive quarters of declining output. The service sector expanded by 7.6 per cent with tourism and shipping playing a key role. Rising foreign trade also helped to boost the sector's performance. Finance and real estate expanded by 14.9 per cent, partly a result of the higher interest spreads that manifested in 2002 as average interest rates declined. At the end of March, VAT receipts were only 20 per cent of the budgeted figure for the year. This is particularly disappointing as the period had recorded increased economic activity and international trade. Excise tax, the next largest revenue source, also declined during the first quarter, but is on track to meet the budgeted target. |
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